Mr Hammond said: "The EU is a very skilled negotiator... they've negotiated agreements with many countries. They are very skilled and very disciplined in the way they carry out their negotiation, and it doesn't surprise me remotely that what they've set out this morning is a very tough position.

"That's what any competent, skilled and experienced negotiator would do. I expect that we will have a deep and constructive engagement with them, and I hope that what I've set out here this afternoon will contribute to the discussion that we'll be having."

On Tuesday, French economy minister Bruno Le Maire told the BBC: "Financial services cannot be in a free trade agreement, for many reasons, for reasons of stability, for the sake of supervision because there are some very specific rules for financial services."

He said that the "best solution", would be for a system of "equivalence" where both sides recognised each other's standards.

But Mr Hammond said: "It is time to address the sceptics who say a trade deal including financial services cannot be done because it has never been done before.

"To them I say 'every trade deal the EU has ever done has been unique'.

"The EU has never negotiated the same arrangement twice. It has bespoke relationships with Turkey, Canada, Singapore, South Korea, Switzerland."

Analysis: Kamal Ahmed, economics editor

In his speech on UK-EU co-operation post-Brexit, the Chancellor referred to past attempts at forging a free trade agreement between the US and Europe.

"Which it described as a partnership that would be: 'more than a traditional free trade agreement'."

Mr Hammond argued that if the EU tried it before with a nation which doesn't have regulatory alignment on financial services - America - then surely it can do so with a country that it at present does - the UK.

But the Chancellor also said a lot more than that.

Because the person who proposed "regulatory co-operation" on financial services as part of the EU-US free trade negotiations was one Michel Barnier.

Shadow Chancellor John McDonnell said: "The Chancellor has shown his hand, and it is clear he is looking for a TTIP type deal as his blueprint.

"Yet those negotiations took nearly four years and collapsed, which is why a transition period is critical."

Mr Hammond also said: "A trade deal between the UK and the EU must start from the reality of today, that our economies, including in financial services, are interconnected, that our regulatory frameworks are identical."

Stephen Jones, chief executive of UK Finance, the trade body that represents the UK financial services sector, said: "Thousands of customers and businesses in Europe rely on access to financial services from the UK. It is in everyone's interests for this vital cross-border trade to continue."